.png){kind=logo}
How to run a successful small business — everything you need in one place
Have you ever wanted a concise summary of the most important factors you need to master in order to run a small business successfully?
Perhaps you’re a startup entrepreneur and you’d like a checklist of the key issues to consider before launching. Or maybe you own an established small business and you’re wondering: could we do things differently, more effectively, more profitably?
This article touches on the success factors that are vital for almost any small business, regardless of its age, industry sector or customer type. As you read through it you’ll find links to some of the many other articles we’ve published, so you can dip into individual topics in more detail as you wish.
Here are our ten success factors:
1. Be clear about your distinctive skills and capabilities
Your starting point as an entrepreneur should be a clear-eyed assessment of the distinctive skills and capabilities of you, your staff and your company. What is it you can do that stands out?
You might have a high level of expertise in a specialist activity like repairing racing bicycles or designing low carbon household heating systems. Perhaps you have a dense network of relationships in a niche activity, such as finding garment manufacturing suppliers in Turkey.
Whatever your skill is, remember that most customers want to deal with a specialist not a generalist. Your expertise or capability should clearly differentiate you from someone who’s a jack of all trades.
If you’re launching a startup into an established market, ask yourself: why would a customer choose your product or service over one from a competitor who’s been in the market for 10 years? What do you bring that’s new or different? Be sure of your answer before you move on.
2. Identify your target customer and your USP
Next, you must identify a set of customers that has a problem you can fix or an opportunity you can help with by applying your distinctive expertise. In other words, you need to find a good match between your skills and a customer pain point.
As you do so, it’s vital to develop a clear understanding of the Unique Selling Point (USP) of your product or service. Your USP expresses the key benefit(s) that your target customer will obtain when they buy from you. It’s what results from connecting your distinctive skills to the customer’s unmet need. It’s the reason why customers should buy from you rather than from your peers.
In truth few businesses are ‘unique’ in the literal sense. Even businesses with a unique asset (e.g. a luxury goods company with a renowned brand or a pharmaceutical company selling a patented drug) usually compete against other similar businesses with similar ‘unique’ assets. So you will have competition but the amount you face must not be endless.
Once you’ve identified your target customer group, you should find out everything about them. If your customers are consumers, study their demographic details (age range, sex etc.), their income, how and where they live and work, what they like and don’t like and so on. If they are businesses, study their industry, their typical size, profitability, growth profile, purchasing criteria and so on.
Once you’ve completed steps 1 and 2, you’ve successfully identified your business idea (if you’re a startup) or confirmed its validity (if you’re an established business). A compelling business idea is an idea that matches your distinctive skills or capabilities to a gap in the market where customer needs are being served poorly or not at all.
If you’re a startup, you might even have an idea for a product or service that’s completely new. If so, customers don’t even know they want it yet but hopefully they will when they see it. In this case, your market research needs to give you some tentative comfort about the size of the market. Are there enough potential customers with enough spending power to make your idea viable?
3. Design a winning business strategy
Now it’s time to design your business strategy. Your strategy defines how you will turn your idea into a profitable business.
There’s usually more than one different way of converting an idea into a business. You need to consider all of them and decide which is likely to be the most successful. Here are some key issues to consider:
To deliver the USP to the customer, precisely what product or service will you need to sell? For example, are the core features of your product or service already sufficient or will the customer expect a broader feature set in future?
How will you produce the product or service? For example, which tasks will you handle in-house and which functions will you outsource to suppliers or other partners?
What revenue model will you use? Depending on what you’re selling, you could sell per unit, on a subscription basis, using a free model funded by advertising and so on. There are also many options for pricing (e.g. per unit/ per hour, fixed price for a project).
“Strategy is about how you attain desirable ends with available means.” — Max McKeown [1]
As you consider these questions, you may face trade-offs between competing objectives. The size and nature of these trade-offs may also vary depending on whether you are looking at things from a short- or long-term perspective:
Growth. Which options will give you the greatest revenue growth potential?
Profitability. Which choices should result in the highest profitability?
Differentiation. Which set of strategies will most clearly set you apart from your competitors?
The last point merits a bit more discussion.
As you develop your business strategy, look for opportunities to further strengthen your USP. Don’t just focus on your product or service itself. Keep an eye open for ancillary issues that may also matter to your target customer.
For example, you may have a great product but would the customer also value speed of order turnaround, a long warranty period, outstanding after-sales support, the ability to customise and so on? Try to find 2-3 benefits which, in combination, make your offering different and, for some customers, clearly preferable to what your competitors offer.
As you refine your strategy, don’t be afraid to narrow your customer focus. Targeting a niche can be unnerving because it feels as if you’re excluding potential customers and reducing your revenue potential. But that’s not how it works in practice.
If you present yourself as a specialist, most potential customers won’t want what you’re selling. But when someone who does want what you’re selling comes across you, they will think immediately: this person has exactly what I’m looking for!
By contrast, very few people buy from a jack of all trades. He or she may well be selling what they want. But they don’t come across as credible to the customer because they’re not an expert.
You’ve now completed a brief overview of business strategy. If you’d like to dig into the topic in more detail, read our article about how to develop a strategy for your small business.
4. Select the right marketing channels
Now that you’ve created your business strategy, it’s time to design your marketing strategy. Your first task is to work out the best way to reach your target customer. This is called channel selection.
You have many options to choose from. Major online marketing channels include ‘organic search’ (i.e. your website), social media posting/ sharing, digital advertising (e.g. Google Ads, Facebook Ads) and many others besides. Major offline channels include bricks and mortar retail outlets, attendance at trade shows, print ads and other techniques.
It’s an obvious point, but you need to choose marketing channels that your target customers use. And the channel must be a good format for showcasing the USP of your product. So Instagram could be a good channel for marketing cosmetics to young women but not for marketing construction equipment to purchasing managers.
When designing your strategy, bear in mind the concept of the ‘marketing funnel’. This is the multi-stage process by which your marketing efforts must:
Make large numbers of potential customers aware of your brand, the product you sell and the benefits they could potentially obtain from it.
Pique their interest such that some of them engage with you to find out more about those benefits.
Persuade them of your credibility, expertise and trustworthiness as a seller.
Eventually convince them to purchase the product you sell and to buy it from you rather than from your competitors.
Different channels are best suited to different stages of the marketing funnel. So you will need an integrated strategy with at least one channel working for you at each stage.
Different businesses naturally need to use the marketing funnel in different ways. If you sell bars of chewing gum your process will be a lot simpler than if you sell products or services with a long, complex decision-making process, such as buying a car or taking out a mortgage loan. But the principles at work are the same.
Finally, the marketing channels you choose need to be cost-effective. Not surprisingly, some of the most powerful marketing channels (e.g. social media ads) are also among the most expensive. You need to find the right mix for your business.
A key concept to bear in mind is customer acquisition cost. This is the total amount you spend on marketing via a channel per year divided by the number of new paying customers it brings you. By comparing your customer acquisition cost with the average profit from a first sale, you can measure how profitable (or not) a channel is for you.
Yet even if your first sales are loss making a channel may still be effective if the customers it brings you become regular repeat buyers. Building customer loyalty and stimulating repeat buying is a critical marketing skill — it’s where many successful companies make most of their profits.
Finally, avoid being dependent on a single marketing channel — especially if it’s one you don’t control, like Amazon or the big social media platforms. These can be huge multipliers of your business volume and many entrepreneurs have enjoyed lots of success using them. But the rules can change to your detriment without warning (e.g. cost of your ad, display frequency of your posts), so beware.
5. Craft effective marketing messages
Now that you’ve decided on your best marketing channels, make sure you’re using them to communicate the right marketing messages.
One general principle applies in almost all circumstances — your key messages should focus on your target customer’s ambition or problem and how your product’s USP solves it for them.
An oft-quoted rule of marketing, which amounts to the same thing, is to market benefits not features. So don’t explain what your product does, explain how it helps your customer:
If you develop a business software application, tell the customer how much it will increase their pace of lead generation or reduce their operating expenses.
If you make a consumer product, start by telling the customer how much time it will save them, how much fun they will have with it or how great it will make them feel about themselves.
There is of course a time for explaining features. This comes once potential customers have been hooked by the benefits you offer and want to research your product or service features in depth. To close the deal, you’ll need to help them understand the nuts and bolts of how it works, the model and price options you offer and so on.
If you’d like to read more about marketing strategy, check out our article about how to design a successful marketing strategy for your small business.
6. Design your business processes for maximum efficiency
When a small business achieves success with customers and its sales grow strongly, problems can easily develop with its internal business processes:
The entrepreneur brings new staff on board to cope with rising business volumes. But different staff start carrying out the same processes in different ways. Simplicity and consistency are replaced by a hotchpotch of improvisation.
The company adapts its operating processes to meet rising demand. But processes are also added that result in duplication of work. Some existing processes become completely redundant but they remain in place due to inertia — staff continue doing things because they’ve always done them.
This is all very inefficient (and expensive). To keep your business running as efficiently as possible, focus on two key design principles.
First, periodically review all your key business processes, document the workflow and identify which steps create value for customers and which don’t. A good tip is to ask: would our customer pay us to do this?
You’ll find that most work steps don’t add any value at all.
Some of these zero value processes are nevertheless essential to keep your company running, like paying your monthly rent or conducting staff performance reviews. But others aren’t needed at all. Think about production workers walking back and forth to fetch tools that should be stored close at hand or the finance team preparing internal monthly reports that nobody reads.
These are examples of what Lean management experts call ‘waste’. You should ruthlessly eliminate as much of this wasteful work as you can.
Second, you should ensure that your essential processes are executed the best, most effective way every time. For each essential process, ask your staff to identify the best way to carry it out. Document the results in simple video, audio or written form. Everyone should then follow this company standard best practice every time.
This is not an argument against innovation. You should always be on the lookout for ways to make your processes cheaper, quicker or more reliable. But unplanned variation is the enemy of quality and efficiency. And standardisation eliminates the need for management supervision and review.
There’s another big benefit of standardisation — it’s easy to nominate a stand-in for every staff member who carries out a key process. This will ensure your critical processes continue to be executed smoothly regardless of holidays, sickness or resignations.
7. Automate your workflows where possible
Many of your business processes can’t be automated — they need a person to carry them out. For example, designing great new products, planning your entry to a new customer segment or pitching your offering to potential new customers.
But many of your business processes can be automated using technology, whether software or hardware. And when you can automate, it’s usually better to do so:
Automating a process should eliminate the risk of human errors, which can be costly to correct.
If you compare the cost of automation against the full cost of your staff, you’ll usually find that technology is cheaper. Remember that employing staff involves NI (National Insurance), pension, office overhead and management review costs and your staff are only productive some of the time (think holidays, sickness, time consumed by administrative tasks etc.).
Be especially vigilant for any processes that use paper or spreadsheets. Paper-based processes are hopelessly inefficient and prone to error. And spreadsheets are great for many things but running key business processes isn’t one of them.
The processes that are most amenable to automation are usually the ones that create the least value for your customers. They are often administrative tasks that don’t use your employees’ skills and creativity. Automation can free your staff to spend more time on value-creating work.
These are some of our ideas for boosting your company’s productivity. If you’d like to read about business efficiency in more depth, see our article about how to manage your small business to maximise productivity.
8. Guide your staff to focus on your key objectives
As a successful entrepreneur-led company grows, the founder typically puts in place a layer of top management (CFO, COO, CMO, CTO etc.) to help run the business. And as they delegate management authority, the owner becomes more distant from the company’s day-to-day operations.
With increasing size and complexity, a business becomes harder to manage. And whereas the owner previously kept the business on track by regular face-to-face interaction with their staff, this ceases to be practical as the company’s headcount increases.
A particularly common problem is that a gap opens up between the founder’s key objectives and what the front-line staff spend their time working on. In other words, the efforts of the staff drift out of line with the CEO’s strategy.
To close this gap, you need a light-touch system that will efficiently guide and monitor your employees’ work. For many companies, the best solution is a well-designed system of Key Performance Indicators (KPIs).
The term KPI is widely misunderstood. Here’s the definition you need in order to use this valuable tool effectively:
KPIs are operational metrics not financial metrics.
They drive results, they don’t measure results.
Most KPIs should be forward-looking or relate to today’s business. They shouldn’t look back.
Using KPIs to steer your business is consistent with a wise management dictum:
“Manage the cause, not the result.” — W. Edwards Deming. [2]
If you identify the most important operating metrics that drive your business and task your staff with hitting them, you will usually steer your business towards your goals.
Let’s make this clear with a few examples.
Revenue growth rate is not a KPI — it’s both a financial measure and an outcome measure. Measures of customer satisfaction (e.g. average review score on Trustpilot) are operational metrics but they are outcome measures and therefore also are not KPIs.
Examples of operational metrics that drive outcomes include the number of new customer leads generated by the sales team or the fault rate per 1,000 units manufactured by the production team. Therefore either of these metrics could be a KPI.
How do you choose the right KPIs for your company? A good way to start is to identify your Critical Success Factors (CSFs). These are initiatives that your business must progress effectively on a continuous basis in order to execute your strategy and progress towards your top level goals.
Examples of CSFs could include ‘increase our rate of new sales lead generation’, ‘improve our rate of on-time deliveries’ or ‘accelerate our new product development process’.
Then identify the operational metrics that — if you achieve them — would make the most powerful contribution to achieving your CSFs. These will be your KPIs.
You should be sparing — aim for no more than a dozen CSFs and a dozen KPIs. If you aim for too many targets you’ll dilute your efforts and end up hitting none of them.
Focus on what’s critical.
It’s crucial that the CEO personally follows up on any missed KPIs with the head of the team that’s responsible for the KPI and do so immediately. By itself, this should ensure that few KPIs are missed.
When a KPI is missed, the CEO should require a thorough investigation into the underlying causes. This should be an opportunity for learning and improvement, not a blame game.
This brings us to our next topic — management reporting.
9. Put in place actionable management reporting
You need a reporting system that communicates how your business is performing to you and your management team. Without such a system, you won’t know whether your staff and your business are responding to your targets and initiatives in the way you expect.
The first thing to consider is which data to report. You need to capture all the performance data that are relevant and important and exclude any data points that are not.
To this end, your management reporting packs should comprise a mixture of key performance measures (i.e. your chosen KPIs) and key outcome measures (e.g. revenue and cost growth, profit margins, cash flow):
Performance measures alone won’t tell you whether better operating performance is converting into better outcomes. Your KPIs are not an end in themselves, they’re a means to better long-term growth in your revenues and profits.
Outcome measures alone won’t explain how results were achieved. If profits increase because of a temporary operating factor, you might mistake this for a sustainable improvement even though it will soon vanish.
Having identified the right data to report, you need to make your reports actionable. Actionable reports prompt you to step in to correct problems or reinforce positive trends. Here are two tips to help ensure your reports trigger action:
Format. Your management reports should be easy to read. They should highlight the key issues and make it obvious if any area of performance is poor. Well-designed charts and tables can help.
Timeliness. Your reports should reach managers quickly enough to enable them to act. Report KPIs either daily or weekly, whichever is appropriate. Insightful analysis is useless if it arrives too late for you to act on it.
This is a summary of our advice about how to implement effective operational and financial management techniques in your business. If you’d like to delve into these topics in more depth, see our article on running your small business with the help of effective KPIs and management reports.
10. Maximise personal and team productivity
“To be effective is the job of the executive. Effectiveness… is a habit, that is a complex of practices. And practices can always be learned.” — Peter F. Drucker [3]
So far you’ve designed your strategy, created efficient business processes and put in place an effective management reporting system. It’s now time to make sure your management team is converting all this good work into profitable outcomes for you.
Your managers should keep your company moving forward towards your goals every day. To make sure they do, you need an effective set of management routines.
These routines should ensure that your top executives keep up a high tempo of work focused on the key issues that drive your business growth and profits. They are the mechanism by which you direct your managers, keep them on track and hold them accountable for results.
At most companies, scheduled weekly and monthly meetings are the core of the management routine. Here’s how to make sure these meetings work effectively:
Meetings should focus on debating key issues, not sharing information (do this beforehand by email).
Focus your meetings on the most important issues that can really drive better performance. Don’t waste time on secondary topics.
Make sure management discussions are based on financial and non-financial data that are relevant, accurate and sufficient for the purpose.
With few exceptions, meetings should conclude with decisions about future actions. Responsibility for action points should lie with clearly identified individuals. If a meeting ends without decisions and action points, what was its purpose?
Here’s a useful tip. Don’t set management targets for the year. Set targets for the quarter. 90 day targets leave no room for managers to slack or drift off course.
On top of good team routines, make sure you and your managers are personally productive. Many of us feel worked off our feet but often it’s because we don’t prioritise and organise well.
“Being more productive doesn’t mean working longer hours. It means choosing tasks with the greatest impact and then eliminating interruptions so that you can get on with them.” — Zena Everett [4]
Here are some personal productivity tips:
Time blocking. Most of us don’t have a routine for the day and we tend to deal with small, easy tasks first. By the time we get round to the big, hard jobs that can really make a difference, we no longer have the mental energy for them. Schedule your week to include a few blocks of 90-120 minutes at times of the day when your energy levels are high for tackling these hard tasks.
Email. Email is not for conversations — pick up the phone, it’s more efficient. Schedule time for reading emails when you are usually low on energy (e.g. 5pm). Send quick replies immediately. Move emails that need longer responses to an ‘action’ folder and schedule blocks of time to process them. Empty your inbox by archiving messages you want to keep. Use the delete key liberally.
Delegation. As the CEO, spend your time doing the things that only you can do and delegate most other tasks. Good delegation is a skill that can — usually must — be learned. Set aside time to study delegation best practice — it will repay your effort many times over.
I elaborate on these and other productivity tips in the article I referenced earlier on how to manage your small business to maximise productivity.
[1] McKeown, M. (2012) The Strategy Book. 3rd Ed. Harlow, Pearson Education Limited. For more about Max McKeown’s profile and work, see https://uk.linkedin.com/in/maxmckeown. [2] See https://quotefancy.com/w-edwards-deming-quotes. W. Edwards Deming is seen by many as the father of modern Lean management thinking. For a good profile of Deming and his work, see https://www.bl.uk/people/w-edwards-deming. [3] Drucker, P. (1999) The Effective Executive. Oxford & Burlington MA, Butterworth-Heinemann. This classic book can be bought at all good book shops. For more about Peter Drucker’s ideas and work, see https://www.drucker.institute/ . [4] Everett, Z. (2021) The Crazy Busy Cure. Boston MA, Nicholas Brealey Publishing. For Zena Everett’s profile and her books, see https://www.zenaeverett.com/.